TAX NEWS - June 2010

Colorado Tax: Tax increase in tough economy can be a hard sale

On Tuesday night, the City Council will discuss the idea of putting a sales tax increase on the November ballot.

Although nothing has been decided, some city officials are advocating for a 1 cent increase to meet looming budget needs.

The city administration estimates an annual budget shortfall of about $16.2 million largely due to declining sales tax revenues.

For years, Fort Collins benefited from the fact that 40 percent of the city sales tax revenue came from nonresidents. In effect, we bought lots of public amenities with someone else's money. In less than 10 years, that inflow has drifted down to a respectable, but much lower, 24 percent.

Consequently, since mid-decade, city leaders have operated in a more resource-constrained environment.

Mayor Doug Hutchinson, City Manager Darin Atteberry and the City Council had to resize local government. They made program and staffing cuts, found efficiencies and got serious about growing the tax base through appropriate economic development.

Regarding economic development, while making the case for more money for city government, it is important for city leaders to also explain how they're going to attract more money into the community. The Great Recession created a jobs hole that will take three years to fill. From the 2008 third quarter through the 2009 third quarter, the area lost a net 6,159 jobs.

To address this problem, the chamber developed a jobs program for the community, "An Economic Agenda for Fort Collins, Colorado." The program was featured in a May 31 story in the Coloradoan. The document offers 25 recommendations. Some of them relate specifically to actions the local government can take to grow jobs and the tax base.

The point is that it's tough to ask people to dig deeper in their pockets when many of those pockets are empty. An elevated economic program is in order at this time in the community's history.

And, it's in the city government's self-interest. When citizens get paid by being gainfully employed at or near the limits of their education and abilities, their disposable income makes its way through the local economy and some of it ends up as sales tax revenue for the city.

If the council decides to move forward with a ballot issue, the size, length and allocation of new sales tax revenues all will be discussed. There are some legitimate questions being asked about each of these:

Why a full penny increase in the base sales tax, which would raise $20 million per year, when the stated priority needs cost $16.2 million?

Why a perpetual tax instead of sunsetting all or part of the tax at some date in the future?

Why have the money go into the general fund instead of dedicating part or all of the money to specific uses such as transportation?

How much new revenue will the city collect when retail sales improve and Foothills Mall is redeveloped?

It's a tough environment to ask for a tax increase, but the public has been well served by a mayor, city manager, finance director and council that have made some hard and responsible choices. They have earned and deserve thoughtful consideration as they make a case for more revenue.